Does Spain's aggressive tax fraud stance threaten La Liga's quality?
Jose Mourinho is the latest to have received a suspended jail term for tax evasion in Spain. The former Real Madrid manager must pay a €2 million fine to the tax office in Spain. Spanish law allows first-time offenders to pay off convictions of less than two years. The Portuguese admitted defrauding the Spanish taxman out of €3.3 million between 2011 and 2012 by diverting image rights income to offshore accounts when he was in charge of Real Madrid. Cristiano Ronaldo, Lionel Messi, Neymar and several other footballers were also indicted on similar charges in recent years. Of the three biggest names, only Neymar's charge was vacated. With such a high conviction rate, the Spanish government continues to prosecute more stars. Even without hard data to support the theory, it stretches credibility to assume footballers aren't thinking twice about transferring to Spanish clubs.
The situation continues to unfold. The government hasn't developed an irrational hostility towards footballers. Athletes spend most of their time either playing or training. They employ lawyers and agents to manage income from football and endorsements, trusting them to handle tax matters appropriately. Like anyone, they want to pay the least they can. Agents are already adjusting to the government's aggression which is why these cases are virtually all retroactive. Prosecutors stumbled on a practice that syphoned millions from the Spanish economy and it's profitable for them to attempt to recover as much as possible.
Unfortunately, one consequence of their zeal is that La Liga becomes a less attractive destination for footballers because they cannot avoid paying taxes on their image rights. It's been speculated that Cristiano Ronaldo left Real Madrid for Juventus when the club failed to support him effectively against prosecution. Had the club adjusted his salary to cover the fines and future taxes, they would still be riding the Portuguese superstar substantial marketing coattails. Instead, Juventus now reaps the benefit of CR7 in a zebra kit.
Data Source: KPMG Football Benchmark
Not only might foreign players [and managers] worry about the legal and financial risks in signing for a Spanish side, players already on the books may begin to look abroad. Because clubs and agents negotiate salaries after taxes, it's more expensive for countries with higher tax rates to sign top players. With France charging the highest tax rate among European footballing nations, Paris Saint-Germain pay even more for Neymar than the advertised €222 million fee. Now that Spain has closed the escape route for image rates, Real Madrid and Barcelona will be forced to pay more to keep players like Vinicius Junior and Ousmane Dembele on the books. Meanwhile, the Bundesliga and Serie A become even more attractive alternatives able to offer increasingly competitive salaries. The same can be said for the Super Lig in Turkey and the Chinese Super League if the player is not concerned with Champions League football.
The government's aggressive tax policy also affects La Liga's competitive balance. The league adjusted broadcast revenue distribution in the last agreement to put more money in smaller clubs' coffers but the added expense of covering a player's cost for image rights taxes hurts the likes of Girona and Villarreal much less than it does Real Madrid and Barcelona who generate more and greater revenue streams.
While the cost of adapting to the harsher tax enforcement is permanent, the effect on their competitive standing might be temporary. The potential exists for a significant talent exodus from the Premier League and the Championship when Brexit finally becomes reality. Immigration rules will change. The UK may feel the need to raise taxes to compensate for Brexit costs. Players and managers won't like either. They may suddenly find Spain a more attractive destination. In the end, football is a business and business always gravitates towards the best deal.